RESPA REFORM:  GFE Page Two

By Fredric J. Gooch, DocuTech General Counsel

The previous article in this series examined the first page of the Good Faith Estimate.  It discussed new loan term disclosures that have been added to the GFE for the changes that are effective on January 1, 2010.  This article will discuss page two of the new GFE.  Page two of the new GFE is designed to disclose the origination and settlement charges to the borrower.  The items disclosed on page two are more in line with the older version of the GFE in that they are focused on informing the borrower of the cost of obtaining and settling the loan.  The page divides settlement costs into 11 different settlement cost categories.  Many of these categories will also be displayed on the HUD-1 Settlement Statement to allow the borrower to compare the accuracy of the GFE to the actual values charged on the HUD-1.  Different tolerance levels apply to each of the categories and if a tolerance is exceeded the lender or settlement agent may need to issue a refund check to the borrower for excess charges.

Block 1 discloses the origination charge to the borrower.  This block must disclose all the charges that originators will receive, except for discount points (or the charge for interest rate chosen), for the loan.  Loan originators may not charge any other fees than those disclosed in this block, meaning this new fee line would be the total of fees formerly disclosed as application, processing, underwriting or any other fee associated with origination of the loan.  There is a zero tolerance for this block item, meaning that this amount may not increase at settlement.

 
Block 2 discloses the credit or charge the borrower will pay for the interest rate they have chosen.  This is the area of the document that has been swamped in controversy from mortgage brokers as it changes the way a yield spread premium is disclosed.  In this block the mortgage broker must indicate whether there has been a charge or credit for the interest rate chosen.  If the borrower is receiving a credit for the interest rate chosen (YSP) then they will mark the second box and indicate the amount of the credit and the interest rate.  The credit will be marked as a negative number in the totals column.  If the borrower is paying a charge (points) the third check box is marked and the charge and interest rate is indicated.  Only one of these two boxes may be checked, a credit and a charge may not occur together in the same loan.

If a mortgage broker is not involved in the transaction the lender may choose to not separately disclose any credit for the interest rate chosen on the loan, but if such a charge exists the lender must check the first box to indicate that the charge for the interest rate chosen is reflected in the origination charges.  In this situation the lender must insert the interest rate and must insert zero in block two.  The amounts in block 2 are subject to zero tolerance meaning any credit cannot decrease or any charge cannot increase.
 

Line A is the sum of the numbers disclosed in Blocks one and two.  The amount disclosed on this line could be a negative number if the credit in block 2 exceeds the amount in block 1.  The amount disclosed on line A is subject to zero tolerance.

The next section of the GFE discloses the charges for settlement services and the tolerance levels for these charges vary based on circumstance.  The sum of the totals of blocks 4, 5, 6 and 7 are subject to a 10 percent tolerance if the originator requires the use of a particular service and the borrower can choose from a list of providers identified by the originator.  If the borrower selects a service provider that is not identified by the lender then the charges for that service are not subject to the tolerance.  If the originator allows the borrower to shop for third party settlement service providers, the originator must give the borrower a list of settlement service providers on a separate sheet of paper at the same time the GFE is delivered.

Block 3 is for disclosing the settlement services that are required and selected by the originator.  The services and the estimated cost for the services must be disclosed.  The totals of the services are added together and displayed in the block.  This total is subject to an overall 10 percent tolerance.

Block 4 discloses the estimated total charge for all third party closing settlement service providers regardless of whether the charges are paid for by the borrower, seller or originator.  This amount must include title insurance premiums where applicable and all title searches, examinations and endorsements.  Block 5 discloses the total charge for owner’s title insurance and related endorsements irrespective of who actually pays the charge.  If the transaction is not a purchase loan then the originator may put N/A in this block.  The amounts disclosed in blocks 5 and 6 are subject to the overall 10 percent tolerance.

In block 6 the originator discloses required third party settlement service providers where the borrower can shop for and select the providers.  The originator must also disclose the estimated charge for each provider.  The amount of the charges is displayed within the block and is subject to the overall 10 percent tolerance.

Block 7 is for disclosing the state and local charges for recording the loan documents at settlement.  The sum of the charges in block 7 is subject to a 10 percent overall tolerance.  In block 8 the originator discloses the sum of all state and local government fees on mortgage and home sales based on the loan amount and property address.  The sum of the charges in block 8 is subject to a zero tolerance.

 
The initial amount deposited into the escrow account is disclosed in block 9.  This amount must reflect the amount charged at settlement for property taxes, homeowners insurance, mortgage insurance, or any similar insurance as well as any other period charges.  Originators will indicate whether the escrow account will cover future payments for all insurance, taxes or other obligations required to be paid as they become due.  If the escrow account only covers certain types of taxes or insurance the originator should check the other box and describe the particular insurance being collected in escrow.



Block 10 is the estimate of the amount due at settlement to pay for interest charges from the date of settlement until the first day of the first period covered by the scheduled mortgage payments.  The methodology for this calculation must be disclosed by showing the daily amount and the days for which the charge will be collected until the projected settlement date.



Charges for insurance the borrower must obtain at or before settlement such as hazard, fire, or flood, must be disclosed in block 11.  The originator must disclose the particular type of insurance and the charges.  If an originator requires that these insurance coverage’s be part of the escrow account, the amount of the initial deposit must be disclosed in block 9.

The sum of the totals from lines 3 through 11 are displayed in block B to show the borrower the total amount estimated for settlement services.  The final block is the sum of blocks A and B and reflects the total estimated settlement charges for the loan including both origination and settlement charges.

Page two of the GFE gets back to the original intent behind RESPA which is to disclose to the borrower the charges associated with obtaining a loan.  The charges are displayed in a different fashion than in the old GFE and the idea of a relationship between the GFE and HUD-1 with tolerances is also introduced.  In future articles we will discuss the last page of the GFE and the new HUD-1 Settlement Statement.  The RESPA rules as well as copies of the new forms are available at www.hud.gov/respa.